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CEC: Japanese expert’s solution for banks: Glass-Steagall, jail bankers, cancel derivatives

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Citizens Electoral Council of Australia

Media Release Thursday, 13 October 2016

Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

Japanese expert’s solution for banks: Glass-Steagall, jail bankers, cancel derivatives

The furious backlash against Australia’s banks and their litany of abuses is happening amidst a deepening crisis in the global financial system. Japanese banking expert Daisuke Kotegawa, who in 2014 visited Parliament House in Canberra with the Citizens Electoral Council to press MPs to break up the Big Four banks, has put forward a course of action that all governments, including Australia’s, must take to resolve the crisis in banking worldwide.

First, Kotegawa prescribes a Glass-Steagall separation of commercial banking, which the general public uses for deposits and loans, from risky investment banking and all other financial activity. Glass-Steagall is the only effective way to shield everyday people and the real economy from the inevitable meltdown of the present global financial system and its thousands of trillions of dollars of bad derivatives bets. Glass-Steagall is equally important for Australia’s financial system, which is dominated by four Too Big To Fail banks that are each vertically-integrated conglomerates of commercial banking, investment banking, wealth management, insurance, stock broking and trillions in off-balance sheet derivatives obligations.

Kotegawa’s second directive is that criminal bankers must be jailed. Japan imprisoned several dozen bankers at the time of their crisis in 1999, while the United States arrested no one after the Lehman shock of 2008, Kotegawa stressed in an 8 October interview with Executive Intelligence Review magazine. He said the imprisonment of bankers was necessary to win the confidence of the population that restructuring the banks would not lead to the same crisis occurring down the road.

Third, governments must cancel the banks’ derivatives, Kotegawa says. Derivatives are the complex financial instruments that banks use to make bets on every activity in the financial system, and even on other bets. Their complexity disguises the fact that they are essentially fraudulent, a way for the banks to siphon squillions from the everyday financial activities of the real economy into the coffers of the billionaire elites in London, Wall Street and Malcolm Turnbull’s suburb of Point Piper. In response to the impending collapse of Deutsche Bank, one of the world’s most derivatives-riddled institutions, Kotegawa advised a way to cancel its derivatives which applies to all banks: the government should announce a date on which the derivatives will be cancelled, to give all counter-parties time to unwind their contracts, and then cancel all derivatives on that date.

Daisuke Kotegawa is one of the most qualified people in the world, to give this advice. He is the former deputy director of Japan’s Ministry of Finance, and was Japan’s Executive Director at the IMF in 2007-10; he is now Research Director of Japan’s Canon Institute for Global Studies.

In 1999, Kotegawa led the team at the Ministry of Finance who had to resolve the banking crisis that erupted in Japan when Japanese banks and life insurance companies lost heavily on derivatives bets made with Wall Street investment banks. Because Glass-Steagall was in force in Japan at the time, his team was able to clean up the mess in such a way as to prevent Japan’s crisis from sparking a global financial meltdown. First, the Ministry pulled the banking licenses of the Wall Street investment banks that had sold the derivatives.* Second, Kotegawa’s team spent a weekend unwinding the banks’ derivatives, which stopped the crisis from spreading around the world. Third, the offending bankers, some of whom were Kotegawa’s friends were sent to jail. This latter measure worked: the practices that triggered the meltdown of Wall Street and London in 2008 were shunned by Japanese bankers mindful of the lessons of 1999.

When Daisuke Kotegawa and the CEC visited Canberra in March 2014 to push the need for Glass-Steagall, then-Treasurer Joe Hockey’s Chief Economist Tony Pearson, himself a banker, was unable to answer the incisive questions Kotegawa asked to establish how secure Australia’s banks are. Pearson wanted Kotegawa to take his word for it that Australia’s banks were the safest in the world, but he destroyed any shred of credibility by exhibiting a brazen disregard of the risks posed by derivatives, declaring that the instruments that caused the Japanese banking crisis in 1999 and the global financial crisis in 2008, were no different to airline tickets! Kotegawa was alarmed at the high level of derivatives in the Australian banking system—then $25 trillion but now $38 trillion—and the fact that CBA in 2012 had suddenly taken to hiding its true derivatives exposure, and had been allowed to. He insisted that the Australian financial system was at grave risk from derivatives and derivatives-related threats such as the property bubble, and that Glass-Steagall is therefore as urgent for Australia as for every other country.

While a thorough investigation of the banks is always a good idea, Australia doesn’t need a royal commission to know we need Glass-Steagall. It must therefore be implemented immediately, before the next financial crisis. The CEC is leading the fight to make it happen—join us!

* One of the offenders was operating without a license, so all Kotegawa could do was inform that institution it would henceforth operate under intense scrutiny, which was enough to make it pack up and relocate to the lawless, deregulated enclave of London. That institution was AIG Financial Products, which made the insane derivatives bets called credit default swaps that brought down the global financial system in 2008.

Click here to watch Daisuke Kotegawa’s interview with Michael Billington of EIR magazine.

Click here for a free literature pack on bail-in and Glass-Steagall, including the magazine Glass-Steagall Now! and the latest issue of the CEC’s Australian Alert Service featuring the report: “European banking crisis is a City of London crisis”.


Click here to join the CEC as a member.

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